Tax Law and Business Organization Strategy

Treasury Official: No required minimum distribution relief for 2008

In a Dec. 17 letter to Rep. George Miller (D-CA), Chairman of the House Committee on Education and Labor, a Treasury official has said that IRS will not relieve retirement plan account participants and IRA owners of the need to take required minimum distributions (RMDs) for 2008. The only relief these taxpayers can look forward to is the Pension Act's waiver of the requirement to take RMDs for 2009.

Tough year for retirement plan accounts. The stock market's decline has been especially painful this year for retirees whose retirement plan accounts and IRAs are invested in stocks or stock mutual funds. Because their retirement plan and IRA balances at the end of 2007 were much larger than their balances during 2008, they've been faced with the choice of not making the RMD for the year (and getting hit by a prohibitive penalty) or withdrawing a disproportionately large portion of their remaining account balances and being forced to sell stock or mutual fund shares when their value is exceptionally depressed.

New law relief, but only for 2009. The Pension Act (H.R. 7327, the “Worker, Retiree and Employer Recovery Act”) which awaits the President signature helps out, but for 2009 only. More specifically, for calendar year 2009 only, plan account participants and IRA owners don't have to make otherwise required lifetime RMDs, Likewise, their beneficiaries also don't have to take minimum distributions.

Dashed hopes for 2008. A number of Congressmen have written the Treasury Department asking for RMD relief for 2008. In the past, Treasury responded that Congress is considering temporary relief and that IRS is considering other ways that retirees' RMD problems could be “ameliorated administratively.” But on Dec. 17, Kevin I. Fromer, Assistant Secretary for Legislative Affairs, wrote Rep. George Miller and informed him that in light of passage of the Pension Act, Treasury and IRS “have determined that any further change to the required minimum distribution rules should not be undertaken. . . . Thus, all individuals who are subject to required minimum distributions for 2008 should take their distribution under the existing rules and, as a result of relief provided by Congress, they will be entitled to a complete waiver of the requirement to take any distributions for 2009.”

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Comments (5) Read through and enter the discussion with the form at the end
jayemmay - December 25, 2008 1:37 PM

What about the RMD for someone who turned 70 1/2 in 2008? The RMD has to be taken by April 1, 2009. If the RMD was not taken in 2008, but was awaiting 2009, will it not need to be taken based on the new law, HR 7327?

Jack Howell - January 6, 2009 1:35 PM

According to the Joint Committee on Taxation Report regarding the RMD provisions of the new act: "The provision is effective for calendar years beginning after December 31, 2008. However, the provision does not apply to any required minimum distribution for 2008 that is permitted to be made in 2009 by reason of an individual's required beginning date being April 1, 2009."

Ed Liberty - January 7, 2009 12:40 PM

What about people who are taking distributions under 72T? They should get a break as well if they can live without the money. Has anyone heard anything on that issue?

ron - March 17, 2009 6:19 PM

does the state of Pennslvania tax RMD's recv'd in 2008?

Jack Howell - March 18, 2009 10:52 AM

Ron: We practice in Texas, not Pennsylvania. We are not familiar Pennsylvania state income taxation laws. We recommend you contact either an accountant or attorney in Pennsylvania.

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